UK Wholesale energy prices rose for the third consecutive month with gas prices up 14% to 1.39 p/kWh and electricity following with an increase of 11% to 4.25p/kWh. Oil prices were volatile during June but ended the month much as they began at around $50.00/barrel. Coal prices rose 12% to just over $55.00/tonne.
Following the result of the European Referendum the sharp decline in the value of sterling had the immediate effect of increasing the cost of imported gas. The UK depends on importing gas through Norwegian and European pipelines (about 40%) and a further 16% from LNG cargoes largely from Asia. Prices were also supported by concerns over the UK’s gas storage capacity going into winter as problems were revealed at the UK’s largest Rough storage facility. This has meant that gas injections and withdrawals have been stopped until early August; a factor that could impact inventories for the winter. In addition, the Dutch Government has announced its decision to reduce output from the Groningen gas field from 27 bcm down to 24 bcm during 2016 and this will have a knock on effect on the volume available for imports into the UK system.
Electricity prices followed gas due to the high volume of electricity generated from gas; however low output from wind and a disruption to power imports from France due to striking French workers also gave support to higher prices during June.
Oil prices were volatile during June largely on the back of hedge fund speculation as to the outcome of the Referendum and at one point rose to $53.00 on the news of falling US stock levels, but the immediate impact of the Brexit vote pegged prices back to $47.00 before they settled at $50.00 at month end.